Rising Middle Class Pumping Up Retail

With fewer bills to pay, members of the middle class have plenty to spend on clothes, appliances and audio-video equipment among other things, driving up the consumer-goods market in the process, analysts say.

Utility and housing costs are lower compared to Western countries, allowing members of Moscow’s middle class to spend a larger percentage of their income on consumer goods, Greg Thain, chairman of the Interactive Research Group, said in a recent interview.

Companies need to keep up with that demand if they want to survive, said Alexander Utochkin, an IRG analyst.

“We believe that only those domestic companies that can satisfy the increasing demands of the Russian middle class will succeed,” he said.

The middle class “is of high paying capacity, actively consumes high-quality goods and services and makes the most attractive segment of the market for advertisers,” Comcon, another research company, wrote earlier this year in a report.

Members of the middle class on average spend the largest proportion of their income on food, 17 percent, while clothing and shoes took up 10 percent. Education expenses made up 7 percent and 5 percent of income, while 5 percent went toward household goods, which includes appliances, audio-video equipment and furniture, according to Comcon. The average member of the middle class saves 9 percent of their income.

Expert magazine and Monitoring.ru, which conduct joint surveys on the Russian middle class, said members of the middle class spend most of their spare cash on clothing, shoes, furniture, household appliances and audio-video equipment.

Definitions of the middle class and estimations of its size and spending power vary.

A Russian middle-class family has a monthly income of $300 to $2,000, Vakatova said. Some 15 percent of Moscow’s population aged 18 to 54 and about 6 percent of the country as a whole are middle class, she said.

Expert and Monitoring.ru said the middle class is made up of families whose combined yearly income ranges from $6,000 to $40,000, estimating that 9.5 million to 10.5 million families in Russia are middle class and up to another 2 million are expected to earn enough to join the middle class by the end of 2002.

IRG’s Utochkin did not define the middle class on the basis of income alone, saying the group is made up of people who spend less than 35 percent to 40 percent of their income on essential commodities.

Per capita income of the middle class ranges from $300 to $5,000 a month in Moscow, making up about 40 percent to 45 percent of all population, he said.

In the rest of the country, members of the middle class make $200 to $2,000 a month, Utochkin said, and only 20 percent to 25 percent of households fall into this category.

Expert and Monitoring.ru, furthermore, said that the middle class is made up of two subgroups: a rapidly growing lower middle class made up of families with a combined yearly income of $6,000 to $12,000 and a slowly growing upper middle class made up of families with a combined income of $12,000 to $40,000 per family a year.

The lower middle class is made up 6.5 million to 7.5 million families and members of this group mostly work as middle managers, engineers, specialists and in other professions, Expert and Monitoring.ru said. They can easily afford to buy clothes and everyday goods but only once a year make a big purchase such as a car or furniture.

The upper middle class is made up of 3 million to 3.5 million families and is growing slowly, with many families struggling to maintain their position in this group, Expert said. They are often directors of small or medium-sized businesses and entrepreneurs.

Expert had forecasted last year that the middle class’s real income would grow by about 40 percent in the next five years, boosting its spending power, and the company said in their report earlier this year that spending on real estate, furniture and household appliances would increase.

“People are becoming richer and their purchasing patterns are changing. Now they can afford more expensive and high-quality products,” IRG’s Utochkin said. “They want to buy brands and try new goods and services. For example, four to five years ago only a few [people] purchased mobile phones, yogurt and snacks; now these are products of the mass market.

“Thus, in the [last] four years the market focus has moved from the low-income segment, where low price is a key factor, to the middle-class segment, where there are many competitive factors — quality, advertising, brand, price